FX markets - from a funds perspective - Europa

your currency specialist

FX markets - from a funds perspective

Harald Hild, Portfolio manager FX options


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Investment manager with exclusive focus on Foreign Exchange

Quaesta Capital - at a glance

Products & Services FX alpha programsFX-MMP: Fund of FX managed accountsv-Pro: FX volatility program vTrader: Algoritmic intraweek spot strategy

Currency overlay & FX advisoryActive and passive currency hedging for institutional clients

Employees 14Foundation spring 2005Offices Pfäffikon (Switzerland) and Frankfurt (Germany)Regulators Swiss Federal Banking Commission and BaFinAuM > 1.1 bln EUR

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• Relative and absolute value strategiesThis strategy takes advantage of the shape of volatility surfaces. Spreads invarious volatility matrixes and currencies are traded. Also volatility is bought orsold outright if prices do not properly reflect market environment.

• Time decay strategiesThis strategy takes positions to earn time decay, usually via exotic options with alimited downside. The portfolio is constructed to perform in sideways markets.

• Carry trades via optionsThis strategy enters into positions with a clear risk/return profile. As a result thedisadvantage of low liquidity in hectic markets can be avoided.

• Directional TradesThis strategy takes long only positions in options via low delta contracts to profit fromdirectional moves in spot. Risk is limited to the premium paid.

v-Pro is our long/short FX volatility program

Quaesta Capital – Alpha programs

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The proprietary FX Manager Database – the heart of our multi-manager program

Quaesta Capital – FX manager database

• Over 200 FX single managersand programs

• Quantitative information, i.e. program performance and statistics

• Qualitative information, i.e. due diligence data, manager presentations, office visit reports, internal and external ratings

• Statistical analyses and comparisons of programs

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your currency specialistQuaesta Capital – FX manager database

Over 40% of the FX managers globally manage less than USD 50ml AuM

0%

10%

20%

30%

40%

50%

60%

10-50

mln

USD50

-250 m

ln USD

> 250 m

ln USD

intrad

ayint

rawee

kmult

iweek

discre

tionary

syste

matic

mix• Circa 250 FX Funds ~

150 bln USD AUM

• Only 5% use intradaystrategies

• Pretty equally splitbetween discretionary, systematic and mixedtrading styles

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Were FX Funds heavily affected by recent market turmoil?

Example: EUR/HUF Sep-Oct 2008:• We did not observe extreme positive or

negative performance distribution in pure FX funds.

• This indicates that the majority of the FX managers did not have significantpositions in currencies like HUF, ISK orRUB.

• We suspect Global macro, multi-strategyand fixed-income funds used FX to express their macro-economic view on these countries. FX as the most liquid instrument was the smartest tool to hedgetheir existing exposure e.g. in bonds.

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Immediate reactions in turbulent times

• DeleveragingWhy: managers use risk-adjusted positioning

• Higher transaction costsbid-offer spreads in spot ,forwards and options

• Overall net positions smaller during Aug/Sep/OctFX funds were mainly long USD, JPY and CHF, short EUR and AUD

• Massive redemptions in carry based strategies

• Increased interest in G10 strategiesliquid, uncorrelated returns, hedging

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Actual manager positioning of our FX multi-manager program the FX-MMP

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FX alpha programs offer uncorrelated returns to traditional investments


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Pure FX funds - from a regulators point of view


• Highly liquid instrument base (at least in G10 currencies)

• No toxic assets/strucured products → no reval-headaches

• Liquidity providers on CME, EBS Prime and other ETN‘s

• Different trading styles should avoid extreme positioning

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• What could be done to avoid settlement problems as experienced with Lehman?

• FX markets is the most efficient market - now we are facing lower efficiency due to credit issues. How can we solve that?

• Prime Brokerage – Quo vadis?

• Financial markets overall: back to more rational markets and less volatility

• Very positive: Market/ technical systems did work at any time and clients´ hedgingrequirements could be satisfied

FX manager challenges

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your currency specialistContact us

Huobstrasse 98088 Pfäffikon SZSwitzerland

Tel: +41(0)55 417 00 [email protected]

Oberlindau 63 60323 Frankfurt am MainGermany

Tel: +49 (0)69 7958 88 [email protected]

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your currency specialistImportant information

This presentation does not constitute an offer to sell or the solicitation of any offer to buy securities which may only be made at the time a qualifiedofferee receives a confidential private offering memorandum (‘CPOM’) describing the offering and a related subscription agreement. The statementsin this presentation are qualified in their entirety by reference to such CPOM and related offering materials. No offer or sale shall be made in anyjurisdiction in which such offer, solicitation or sale would be unlawful until the requirements of the laws of such jurisdiction have been satisfied. Thispresentation is not intended for public use or distribution. All the information prepared in this presentation is believed to be accurate.

We make no express warranty as to the completeness of such information, nor accept responsibility for any errors appearing in the presentation. Ifyou have any questions about the accuracy of the data or any other information provided herein, we strongly suggest that you ask for more detailedclarification from us or seek independent and/or expert advice in determining your suitability for such an investment. We may make changes to thispresentation without notification. Prospective investors should not construe the contents of this presentation as investment, tax, legal or other adviceand should consult with their own advisers concerning such issues. In addition, there is no guarantee that the fund will achieve its investmentobjective. In the event of any inconsistency between the descriptions or terms in this presentation and such CPOM and offering materials, such CPOM and offering materials shall prevail.

An investment in the fund is speculative and involves a high degree of risk. Opportunities for withdrawal/redemption and transferability of interestswill be restricted, so investors may not have access to capital when it is needed. There will be no secondary market for the interests and none isexpected to develop. The portfolio, which will be managed by Quaesta Capital or managers selected by Quaesta Capital, may not be diversifiedacross a wide range of industries or securities and this lack of diversification may result in higher risk. It is expected that leverage will be employedin the portfolio, which can make investment performance volatile. An investor should not consider making an investment, unless he is prepared to lose all or a substantial portion of his investment. The fees and expenses which will be charged in connection with this investment may be higherthan the fees and expenses of other investment alternatives and may offset profits. Moreover, the past performance of the investment team shouldnot be construed as an indicator of future performance. 03.01

FX markets - from a funds perspective - Europa

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